Carnival Cuts Earnings Forecast After Crippled Triumph

Carnival Corp. (CCL), the cruise operator
beset by mishaps at sea this year, cut its annual earnings
forecast to reflect costs from an engine fire that crippled the
Carnival Triumph last month.

Earnings excluding some items this year won’t exceed $2.10
a share, Miami-based Carnival said today in a statement, less
than the $2.40 seen previously. The Triumph debacle, which left
3,100 passengers stranded at sea for four days, was the first of
at least three incidents this year on separate ships, including
the Dream and the Legend the past two days.

The Triumph disaster, along with repairs and fleet-wide
upgrades to avert similar failures, will boost costs this year
for Carnival, which is cutting prices to attract passengers.
Bookings for the largest cruise operator have recovered since
the Triumph mishap, aided by discounts, Chairman and Chief
Executive Officer Micky Arison said on a conference call.

“Their short-term results don’t mean that everything’s OK,
since perception about a company’s brand is a longer-term
thing,” said Allen Adamson, a managing director in New York for
branding firm Landor Associates. “Three thousand people
trashing your brand online on TripAdvisor (TRIP) tends to multiply much
faster today than 1,000 people telling their neighbor they had a
good or OK time.”

Carnival dropped 2.2 percent to $34.95 at the close in New
York. The stock has fallen 4.9 percent this year, while
competitor Royal Caribbean Cruises Ltd. (RCL) has declined less than 1
percent. The Standard & Poor’s 500 Index has advanced 9.4
percent.

Two incidents on Carnival ships this week focused public
attention on the impact mechanical failures can have on cruise-
going vacationers.

Trip Aborted

The Carnival Dream yesterday aborted a trip in the
Caribbean because a generator failure interrupted elevator and
restroom service. The company said today another ship in the
Caribbean, the Carnival Legend, was forced to skip a stop
because of slow speed.

“Sadly here, we’ve just had a bit of a run that is very
unfortunate,” Howard Frank, chief operating officer, said on
the call. The company experienced a short, double-digit decline
in Carnival signups after the Triumph, he said.

The new forecast reflects estimated costs of 10 cents a
share related to the Triumph, 14 cents because of lower prices,
6 cents in lower on-board revenue and 5 cents to bolster backup
systems on the company’s fleet, according to the company.

Previous Forecast

Carnival previously forecast earnings of as much as $2.40
while analysts on average predicted $2.37.

First-quarter net income totaled $37 million, or 5 cents a
share, Carnival said. The company posted a loss of $139 million,
or 18 cents, a year earlier after the Costa Concordia ran
aground off Italy in January 2012, killing 32 people.

The company posted costs of 2 cents a share in the quarter
because of “voyage disruptions and related repair costs.” In
February, the company said the Triumph incident would cut first
half profit by 8 cents to 10 cents a share.

The breakdown of the Dream occurred March 13 at night
during regularly scheduled testing of the ship’s emergency
generator, Carnival said yesterday in a statement.

Emergency Generator

Vance Gulliksen, a spokesman, said he couldn’t provide an
estimate of the financial effect of the latest incident. The
company operates about 1,500 cruises annually, he said.

Passengers were to be flown to Orlando, Florida, the
airport serving the ship’s base at Port Canaveral, or to their
final destinations, he said. The company also canceled the next
scheduled trip for the liner, he said.

Guests will receive a refund equivalent to three days of
their voyage and 50 percent off a future cruise, the company
said. The ship is based in Port Canaveral, Florida.

The Carnival Dream had about 4,300 passengers and 1,300
crew aboard, according to Gulliksen. The ship was on the last
leg of a seven-day cruise and was docked in St. Maarten when the
malfunction occurred.

The Carnival Legend was experiencing a propulsion-system
malfunction, the company said in an e-mailed statement. The
safety systems and hotel services are functioning normally. The
vessel will skip a stop in Grand Cayman and return to Tampa,
Florida, on March 17, the company said. Guests were also offered
partial refunds and credit.